Ultimate Guide: How to reduce taxes in Spain

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Gino Peters

Written By:

Gino Peters

Reviewed By: Belinda E.

June 3, 2026 7:25 pm

Category Tag: News

The rise of remote work made international expansion much easier in recent years, but hiring abroad still comes with legal and administrative complexity, as every country has its own labour laws and payroll rules that must be followed. In addition, not many companies can open a new entity in every new market that they are expanding into. That is when the Employer of Record (EOR) solution comes in handy.

The EOR serves as the legal employer on paper, while the client company manages important activities related to the employees responsibilities and performance.

In this guide we will cover what an employer of record is, how it works in detail, how much it can cost and which business should consider an EOR solution.

What is an Employer of Record (EOR)?

An Employer of Record (EOR) is a third party service provider that legally employs a person on behalf of another company in the country where the employee officially resides. As an official employer the responsibilities of EOR include issuance of an employment contract, processing payroll and withholding taxes and necessary social security contributions, as well as preparation of offboarding documents or any documentation that need to be signed by the employer. In addition, EOR ensures the compliance with local labour laws and serves as a first point of contact for any legal disputes.

The client company that hired the employee through an EOR also has a list of responsibilities. As an Employer of Record does not have the visibility on operational activities behind the scenes a client company needs to provide direction and ensure proper team integration.

In simple terms, the EOR provider acts as a legal employer in the country of the employee’s residence, while the client company takes on day-to-day manager work.

Responsibility	Employer of Record (EOR)	Client Company
Employment contracts & any other official documentation
Payroll processing
Income tax & social security contributions
Compliance with local labour laws
Statutory benefits administration
Managing daily work and projects
Setting goals and performance expectations
Providing equipment and tools
Leading the employee’s team and workflow

Employer of Record solutions gain more and more popularity in the field of global expansion as they allow businesses to hire best candidates fast and easy while staying compliant with local employment regulations. More information about EOR service are available if you would like to understand more.

EOR Meaning

The term “EOR” is the abbreviation for Employer of Record.

Employer in this instance stands for the company that hires the employee and takes on duties related to it, such as onboarding and offboarding process, payment of wages and compliance with other legal requirements.

“Record” from the EOR perspective refers to official registration with government authorities. The name of the EOR provider is stated in all payslips and tax filings, and should also be listed by the employee in any documents where employer must be stated, such as mortgage or loan applications.

One might ask a question of why this legal structure exists. As it is not possible to provide an employment contract directly to a person that legally resides in another country, the business expanding abroad typically needs to establish a local entity. That involves legal registration, arrangement of local bank accounts and organisation of payroll structure, as well as compliance with local law.

EOR allows to simplify the global hiring and reduce administrative burden through their existing legal entity.

There are some other hiring models that can be confused with EOR.

EOR and PEO

Many sources online refer to EOR as “international PEO”, which may create confusion as these models have 1 important difference.

A Professional Employer Organisation (PEO) serves as a co-employer of a client company. In other words, a business must already have an established entity in the country. The hiring tasks are, therefore, shared between 2 companies, while legal liability stays only with the client company. In the EOR model all legal risks are being taken by the official employer. Read more about the difference between PEO and EOR here.

EOR and staffing agency

Staffing companies mainly provide assistance for short-term projects by providing temporary workers. If the client wishes to employ a person for a longer time, EOR approach must be chosen.

EOR and contractor model

Contractor agreements assume the involvement of independent workers rather than employees. This model is also often used for temporary, project-based assignments. It is important to remember that there is a big misclassification risk between a contractor and an employee in the company which can lead to potential legal issues. An EOR ensures that employment is legally compliant with local labour law.

How does an Employer of Record work?

While it may sound complicated at first, a process behind the employer of record model is relatively straightforward.

The operating company selects a candidate

The client company recruits the employee they want to hire in another country

The EOR becomes the legal employer & local employment contract is issued

The Employer of Record uses its local legal entity to prepare and issue an employment contract that complies with labour law of the country where the employee is based. Depending on case-by- case situation, the work visa might need to be secured beforehand. Our company provides immigration services, more details can be found here.

Payroll and taxes are managed

The EOR takes on recurring responsibilities related to a payroll and ensures correct processing of income tax, social security contributions etc

Benefits are administered

Paid leave, sick leave, pension contributions and any other statutory benefits are being managed by the EOR.

Ongoing compliance and HR support

It is the responsibility of the EOR to monitor changes in local labour law and ensure ongoing compliance.

Example:

Imagine a UK-based tech company found a perfect candidate in Germany for a position of a software developer.

Instead of going through the administrative burden of opening a legal entity in Germany, the company chooses to work with an Employer of Record. The EOR hires the developer under a German employment contract and manages payroll and taxes. At the same time the UK company welcomes the new employee in the team and manages the daily work of a developer.

What services does an Employer of Record provide?

The Employer of Record does more than just providing an employment contract to the employee. Typically a wide range of HR and compliance services is included in the EOR offer. For example, read about the services included in our EOR package here.

Employment and HR administration

Locally compliant employment contracts and support with other documents requested by authorities
Employee onboarding
Employee record management. For example, control over PTO

Payroll and tax management

Regular payroll processing
Tax withholding and reporting of social security contributions with authorities
Payslip generation and creation of annual wage tax certificates

Benefits administration

Management of statutory benefits
Pension contributions (where required)
Support with benefits such as maternity leave allowance, sick leave allowance etc

Compliance and risk management

Insuring compliance with local labour law
Management of onboarding and offboarding processes
Representation in difficult legal and court cases

Additional services:

Some EOR providers ( such as ThisWorks EOR Services) provide additional services such as:

Work permit and dependent visa support
Background checks
Relocation support
Value added services: support with housing, company car, banking, etc ( depending on the country).

This vast list of services allows businesses to manage international teams, while staying compliant and avoiding complex local employment administration.

Benefits of using an EOR service

There are multiple advantages the businesses can get from working with an Employer of Record provider.

Faster global hiring

Setting up a new entity can take up to several months. With an EOR the hiring process can take several days.

Reduced compliance risk

A trustworthy EOR provider ensures the compliance with all local regulations. As the labour law varies greatly between countries, having a knowledgeable party to rely on can make a big difference.

Lower expansion costs

Establishment of a new entity is not only a time-consuming process, but also costly. With EOR services these costs can be avoided.

Access to global talent

The location of a remote candidate is not a problem if the company uses Employer of Record services. In other words, the best candidate for specific business purposes can be chosen.

Scalable hiring model

EOR services are ideal for organisations that want to scale international hiring quickly. They are particularly useful in the following situations:

Remote-first teams and organisations
Companies testing new markets abroad
Startups expanding internationally

How to choose the right Employer of Record

Choosing between several EOR providers is important, as it influences not only compliance, but also employee experience for new hires and how your company is perceived on the job market.

Here are some important things to keep in mind when deciding on your EOR partner:

Geographic coverage

Make sure that EOR provider can cover the country where you want to expand globally. Read about our EOR coverage here.

Pricing transparency

Check that EOR provider does not have any hidden costs and the pricing is clearly outlined in your MSA.

Compliance expertise

A strong EOR provider should have a team of experienced local HR specialists who understands all in and outs of a national labour law.

In-house vs partner model

Some EOR providers rely on their third-party partners, while others manage employment directly through their own local entities.

Customer support

It is important to find a EOR partner that helps with any questions or concerns in a quick and professional manner. That can be crucial when dealing with employee offboarding or any legal disputes.

Warning signs

Understanding the importance of choosing a right party, your company should be cautious of providers that lack local expertise and cannot give clear answers to your labour law questions. In addition, companies with slow response times can prove to be unreliable in critical situations. Furthermore, providers with complex pricing models with many hidden fees can create a lack of cost transparency and result in unforeseen expenses.

By selecting a provider with strong expertise in local labour law and reliable support from dedicated teams, your company can ensure a smooth international growth. Learn why companies choose ThisWorks as their EOR partner.

How much does an employer of record cost

The vast coverage of services the employer of record provides makes many businesses ask how much an EOR costs.

Pricing models vary greatly on the provider and the country of coverage, but most EORs use one or more of the following structures.

Flat monthly fee per employee.

The EOR provider charges a fixed monthly fee for each employee they have on the payroll from the client.

Percentage of salary

While not being a popular approach, some EOR providers charge a percentage of the employee’s salary, typically ranging between 5%-15%.

Setup fees

Some providers charge onboarding or offboarding fee for each employee.

The fee that the business needs to pay to an EOR provider also depend on the location of a service. Local labour law complexity of some countries can influence the fee. In addition, some countries have specific statutory benefits and payroll administration requirements. Furthermore, employee headcount in the specific location can influence the fee.

EOR vs setting up a legal entity

To establish a new entity the organisations needs to go through legal and tax registration. In addition, accounting support and ongoing compliance costs such as the fees for local labour lawyers can make setting up a legal entity significantly more expensive.

An EOR allows companies to expand globally without these upfront investments.

EOR vs hiring contractors

Some businesses decide to hire international workers as contractors. However, this approach can often lead to a misclassification risk, which can cause legal and tax liabilities.

A professional EOR provider ensures that the new starters are compliantly onboarded under local employment regulations.

EOR FAQs

Is an EOR the same as a PEO?

No. PEO model assumes co-employment and requires the business to already have established local entity, while EOR employs new talents through its own entity only.

Can an EOR hire contractors?

While some EOR providers can support hiring contractors, it is important to remember that main function of EOR is the employment of full-time workers legally in a country. A risk of misclassification between EOR and contractor should be also considered carefully.

Is an employer of record legal?

Yes, when established and structured properly, Employer of Record entities are legal and widely used for international expansion by many companies.

When should you use an EOR?

The most common reason for using EOR include:

Hiring employees located in another countries remotely
Testing new markets before establishing an entity
Expanding internationally

Can you switch from EOR to your own entity?

Yes. Many companies initially hire through an EOR for the ease and speed of expansion and later transition employees to own legal entities upon their establishment. It is important to remember that some countries require specific procedure to be followed in such a scenario.

Get in touch with ThisWorks

Expanding your team globally does not need to be long and administratively complex.

With the use of Employer of Record the businesses can have access to the best talent from around the world while ensuring full compliance with local labour laws.

ThisWorks can support your global expansion with our compliant Employer of Record services.

Contact our team to find our how we can help your international team glow fast and compliantly!

How to reduce taxes in Spain: legal strategies & deductions

Spanish businesses seek expansion in their market while maintaining minimal expenditure levels. Labor laws, together with taxes, create an overwhelming situation for businesses. Strategic cost management methods exist that follow Spanish legal frameworks. Spain provides legal methods to save money that do not violate any regulations. The following guide presents lawful and efficient methods for cost reduction.
Understanding how to reduce payroll costs in Spain starts with identifying legal and strategic tools already available to employers.

Proper planning allows businesses to decrease their payroll expenses in Spain while maintaining team performance. The guide will show you how to access government programs, together with official expense reductions and additional methods for cost reduction. The same strategies work for businesses operating locally and those operating outside Spain. We need to examine these elements one by one while paying close attention to detail. Employers should be aware that tax benefits for expats in Spain may indirectly support payroll cost reduction when hiring internationally.

Legal Ways to Reduce Payroll Costs in Spain

Businesses that operate in Spain need to handle payroll expenses effectively to maintain financial stability while fulfilling labor law requirements. Spain presents multiple methods for organizations to decrease payroll expenses, which simultaneously helps them manage their CSR profiles and decrease overall costs. Businesses can compete in the market through these lawful methods without violating regulatory requirements.
Knowing how to reduce payroll costs in Spain also helps foreign companies design attractive yet cost-effective compensation packages.

Hiring Through Employment Incentive Programs

The Spanish government offers incentives to businesses hiring young workers under 30, long-term unemployed individuals, or people with disabilities. Employers who hire young workers or long-term unemployed individuals can receive Social Security contribution reductions that extend up to 24 months. Additionally, employers can access complete discounts when they hire long-term unemployed individuals. The hiring of disabled employees results in tax advantages along with reduced contribution rates, which provide businesses total savings of between €3,000 and €5,000 per new hire. The incentives simultaneously decrease payroll taxes and improve a company’s CSR (Corporate Social Responsibility) standing in the market. Some of these employment incentives also connect with regional tax exemptions in Spain, offering extra relief depending on the business location.

Using Temporary or Part-Time Contracts

Businesses lower payroll expenses through employment agreements that are either temporary for six to twelve months or part-time for thirty hours per week. The hiring of temporary workers suits project-oriented or seasonal positions, while part-time employment allows employers to cut down on salaries and Social Security expenses. Training contracts for apprentices allow companies to reduce their contribution amounts. Businesses need to properly classify their temporary contracts because incorrect classification causes fines, and part-time employees need to receive benefits proportionally. Understanding Spanish tax laws for non-residents can be important for companies hiring temporary foreign workers, especially in seasonal industries.

Outsourcing Non-Core Functions

Reducing payroll expenses becomes possible when companies outsource non-core operations such as IT support and marketing and accounting, and customer service, since this eliminates the need for mandatory employee benefits, including severance pay and paid leave. The payment structure allows businesses to cover the delivered services without making Social Security tax payments. Contractors must receive proper classification, while deliverable agreements must exist to uphold labor law compliance.
Foreign businesses that use outsourcing should also explore deductible expenses for self-employed in Spain, especially when working with freelancers.

Salary Sacrifice Schemes (Flexible Remuneration)

Through salary sacrifice schemes, employees can select tax-free benefits from their salary in exchange for items such as meal vouchers and private health insurance, and transport passes. The tax-free benefits obtained through salary sacrifice reduce employee and employer Social Security contributions because they decrease the taxable salary amount. The benefit schemes enable workers to obtain valuable perks that neither raise their salary nor result in additional payroll taxes, but increase their job satisfaction.
Knowing how to claim tax deductions in Spain helps employers build optimized salary sacrifice plans that benefit both staff and business.

Remote Work Policies

The implementation of remote work enables businesses to decrease their office expenses and recruit staff from Andalusia’s lower-cost areas rather than hiring in Madrid’s expensive market. The implementation of remote work requires employees to voluntarily participate and the establishment of formal agreements between workers and employers. The implementation of these policies leads to cost savings while giving workers more flexibility which strengthens their job satisfaction and reduces employee turnover.

Special Tax Benefits for Expats and Foreign Businesses

Spain gives legal relief to foreign workers and global firms. These rules help reduce income and payroll tax costs. With smart planning, companies can offer better net pay. Spain uses these benefits to attract global talent and boost hiring. Many firms use these programs without needing high base salaries.
These incentives may also offer indirect insight into how to reduce property taxes in Spain when foreign businesses establish a physical presence.

The Beckham Law and its benefits

Individuals who meet the criteria for the Beckham Law must pay Spanish tax at 24% on their domestic earnings. The special tax rate applies exclusively to their first €600,000 of annual earnings. Tax rates exceeding €600,000 are subject to Spain’s highest income tax bracket of 47%. The main benefit of the Beckham Law allows Spanish residents to keep their foreign income free from taxes. All earnings generated within Spain are subject to tax, but foreign income remains untaxed by Spanish authorities.
This program also fits into a broader understanding of legal ways to reduce Spanish taxes for high-earning expats working in Spain. This regime is available for six years from the date of relocation. After that, individuals return to Spain’s standard progressive tax brackets.

Business-Friendly Rules for Foreign Companies

Spain promotes international investment by implementing tax benefits together with business support initiatives. Different regions in Spain provide tax relief through property tax discounts together with hiring subsidies and reduced corporate tax rates during the initial few years. Several cities offer financial support for office rentals, along with tax credits that depend on new employment numbers. The available incentives function best for organizations that establish new business locations or shift their operations to Spain.
Firms should also explore tax-free investment options in Spain that complement these regional incentives and boost overall savings.

The incentives provided by Andalusia and Catalonia differ from one another since they establish specific benefits for particular industries and business scales. Local development agencies, together with municipal governments, accept applications for their incentive programs.

Spanish Pension Tax Deductions

Many people overlook pension contributions when filing taxes in Spain. But these can lower your bill. Spain rewards those who invest in their future. This is both helpful now and later. Let’s see how to use this option wisely.

How Pensions Can Lower Your Tax Bill

Tax relief from the government becomes available to you through pension plans before your retirement begins. You can deduct the funds you save at present. The regular payment of funds results in reduced yearly tax obligations. This benefit structure applies to both workplace personnel and owners of businesses.
Spanish pension tax deductions lower the tax burden for both business owners and employees planning for retirement.

The Spanish government establishes yearly restrictions for pension plan contributions. To receive complete benefits, you need to prepare your plans ahead of time. The smallest financial investment results in substantial returns. Spanish pension tax deductions function as one of these benefits. The tax deduction helps reduce your entire taxable income amount. The movement to a lower tax bracket becomes possible.

Tax Exemptions and Local Incentives

Tax rules in Spain are not the same everywhere. Each region has its own programs. These can offer major savings for companies and workers alike. Let’s look at what regions provide.

Why Regional Tax Reliefs Matter
The area provides tax reductions to stimulate business growth and job creation. The program offers both income tax reductions together with tax rebates. The employment of staff members in rural areas can lead to additional workforce support. Spain implements regional tax exemptions as one of its localized tax incentive programs. The Basque Country, together with the Canary Islands, operate under separate tax guidelines. The regions provide reduced tax rates to companies making new investments. The reward system of various locations gives benefits to organizations creating jobs that extend beyond short-term employment.

How to Apply for Local Incentives
Each region posts its own plans online. You may find grants, subsidies, or payroll tax relief. The duration of certain programs extends only to a few years. The application period requires immediate attention since qualification depends on your speed. The programs extend their duration annually through minor adjustments. The local business advisors and accountants can provide you with information regarding these opportunities. These professionals maintain detailed knowledge about such details.

Smart Tax-Free Investment Options in Spain
Spain offers several investment avenues that can help you grow your wealth while minimizing tax liabilities. By understanding and utilizing these options, you can enhance your financial planning and reduce your annual tax burden.

Utilize Spanish Compliant Investment Bonds
Spanish Compliant Investment Bonds operate under the name of life assurance policies by offering tax-deferred growth of your investments. Spanish tax law imposes taxation only on investment gains at withdrawal time, while applying taxes only to the profit amount. Investors can legally build their wealth through this structure while avoiding immediate taxation obligations.

Invest in SICAVs for Tax Efficiency
The Spanish collective investment scheme SICAV (Sociedad de Inversión de Capital Variable) operates under advantageous tax regulations within Spain. Taxpayers who choose these entities benefit from a corporate income tax rate of 1%, which makes them appealing for investors looking to grow their wealth tax efficiently. The requirement for SICAVs includes a minimum number of 100 shareholders and a capital threshold of €2.4 million.

Consider Regional Tax Incentives
The region of Madrid within Spain implements tax benefits that target foreign investors to increase interest from international capital. Foreign investors who make bond and treasury bill, and share investments in Madrid now receive a 20% tax deduction on their income taxes. The eligibility requirement includes being a non-resident of Spain for five years while maintaining both investment and tax residence in Madrid for a minimum of six years.

Explore Tax Deductions for Property Investments

Spanish property investments provide tax benefits to investors. Property owners who rent their properties qualify to deduct maintenance costs, along with repair expenses and other relevant costs from their taxes. Property value appreciation becomes more likely when you invest in areas with high demand because it creates greater returns on your investment.

Executing an appropriate strategy enables the possibility of reducing taxes in Spain despite the time it requires. Regular benefits that can be claimed annually remain unknown by numerous people. Legal tax-saving strategies combined with proper knowledge of rules will lead to higher savings. Deductions along with exemptions and strategic investments, enable you to decrease your overall costs. Small adjustments today lead to significant changes throughout the duration. Record-keeping combined with expert consultation and avoidance of typical tax errors will lead to tax reduction success. Anyone learning how to reduce payroll costs in Spain should also study lScal and national tax structure to boost long-term savings.

Frequently Asked Questions

What are the main taxes paid in Spain?
The main taxes include income tax (IRPF) for individuals, VAT on goods and services, corporate tax for businesses, and property-related taxes like IBI and capital gains.

How can I reduce my personal income tax in Spain?
You can lower your tax bill by claiming deductions for mortgage interest, pension contributions, charitable donations, and family-related expenses like childcare or dependents.

What tax deductions are available for homeowners in Spain?
Homeowners may claim deductions on mortgage interest (for homes bought before 2013), renovations for energy efficiency, and exemptions when selling a primary residence and reinvesting.

Are there any tax benefits for pension contributions in Spain?
Yes, contributions to private pension plans reduce taxable income, with limits depending on your earnings and whether you’re self-employed or salaried.

How can I legally avoid inheritance tax in Spain?
Inheritance tax can be minimized through early asset gifting, using allowances for close relatives, and applying regional exemptions based on residency and relationship.

What regional tax deductions are available in Spain?
Autonomous communities offer additional deductions for things like education costs, disability expenses, family support, and eco-friendly home improvements.

Can I reduce taxes by making donations to charities?
Yes, donations to certified NGOs or charities offer tax deductions—up to 80% for the first €150 and 35–40% for larger amounts, encouraging recurring giving.

How does selling a property affect my tax payments?
Capital gains from property sales are taxed between 19% and 28%, but exemptions may apply if proceeds are reinvested into a new primary residence or for seniors over 65.

Are there special tax rules for non-residents in Spain?
Yes, non-residents pay a flat 24% tax on Spanish-sourced income (19% for EU/EEA citizens) and have limited access to deductions available to tax residents.

What is salary in kind, and how does it affect taxation?
Salary in kind refers to non-cash benefits like meal vouchers or health insurance. Many of these are tax-free up to certain limits, helping reduce payroll taxes legally.

How can business owners minimize their corporate tax in Spain?
Business owners can deduct professional expenses, reinvest profits, benefit from R&D credits, and apply reduced tax rates for small or new companies.

What tax incentives exist for foreign investors in Spain?
Spain offers tax breaks for R&D investment, deductions on reinvested earnings, and the Beckham Law, which caps tax rates for qualifying foreign professionals for six years.